Question

How do you find real output in an economy?

Answer 1

You must consider a base year and calculate your series holding that.

The nominal value of macroeconomic aggregates is the current value, that is, the current prices, which, as the name suggests, do contain the current inflation in their measure.

On the other hand, using the real value means you're deflating your series based on a specific year (of your choice, as long as it's coherent with your analysis) to the point of the base. That is, there's no inflation considered since the base, because you'll be holding prices constant at your base year.

Thus, for example, if production increases less than inflation, you'll get an increase in nominal GDP and a decrease in real GDP.